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Sunday, March 17, 2013

The nonsense and (hate to say it) sense of Rodney Hide

While I’m not a typical reader of Rodney Hide, nor do I agree with much of
what he has to say – most the time – but on occasion I find myself in
agreement with some of his ideas/opinions. I encourage you to read on, even if you hate
the pants off Hide.

I want to focus on 3 of Hide’s articles that interested me. Note,
interested does not mean I unequivocally agree with him. But for reference the
articles are embedded as links below.

The business failure is reported
as an economic calamity. And a sign that all is not well within the wider New
Zealand economy...It’s all nonsense, of course. The business collapse shows we
have an economy that is working. We would be better off with more...It is
traumatic and upsetting for those involved. But so, too, is life...It’s simply
a part, and a very necessary part, of living....Business collapse is part and
parcel of a successful economy.

At first glance, I interpreted this article as saying that the free
market wants business to fail. So, I thought I’d ask the biggest defender of the free market I know of (@MarkHubbard33) how he interpreted Hide’s piece. His response
was in summary, that “business failure is the natural, necessary way for the
market to fix malinvestment: that aids innovation and the big problem with
bailouts were they kept alive zombie business concepts/models, and hindered
innovation”. In comparing this response and reading Hide's piece again, I suspect Hide's view is identical.

What I understand from Hide’s comments is that business collapse is
natural and indicative of a healthy economy. My problem with his theory is that
in a later article he implies that providing a living wage to employees is bad for business.

My question is, if you are for the free market and accept that
businesses collapse is natural and necessary, why then is a living wage
considered as something that would cause a business to fail?

For instance, if the labour market demands a living wage and the
business is not in a position to pay it, then surely it is a zombie business and
therefore deserves to collapse under the free market doctrine.

I suspect a response to that claim might be that government legislating what
employers must pay (at minimum) is intervention and not the natural course of
the market. In my view, this is weak. The government are enacting what the
labour market are demanding – the right to be remunerated for the value they
provide to the business. Of course, the particular framing of this claim may
suggest that if a business cannot afford to pay a living wage then the employee
is arguably not providing the business with the value they seek in return for
their labour. Although I don’t buy that argument either, since without the
employee’s labour, that is, the skill used to produce the good or service, the
business would not be able to turn its resources into a revenue stream. The
business does not fail because of the labour provided – it fails because the business
relies on an ineffective business model that ‘hinders innovation’.

Bravo: The real business class

So lets look at what Hide has to say when it comes to paying a ‘living
wage’ to employees:

...many businesspeople don't make the minimum wage,
let alone the "living wage". They work all hours. They sweat about
making the wage bill each week. The income they generate pays all our
wages, either directly or indirectly...Business would survive without government. But government wouldn't
survive without business... business success is the social success that
matters most. It's the success of providing what people actually want at a
price they are prepared to pay.

I’m not
compelled by this argument for he reasons set out above and additionally, I find Henry George’s argument more
persuasive:

“wages are the product
of the labor for which they are paid”

George uses the example of an egg company
that hires a group of workers to collect eggs and in return they receive a
fixed wage. The fixed wage is paid in money that represents the eggs because the sale of eggs produces the cash to pay the wages. This may in fact be what Hide meant. But in my
view Hide overlooked that without labour the business
would not generate the income to pay wages. So the importance is not the
business, it is in fact the labour.

I’m
amused that Hide on one hand says its natural and in fact a sign of a
healthy economy where businesses collapse since innovation derives from these
failures. And on the other hand businesses
that are struggling should be assisted by the government twofold – firstly, by not
legislating a minimum wage thereby privileging the business over the labour,
and secondly, by leaving it to the government to provide social security for
the workers whose employers cannot afford to pay them a living wage. Has Hide
forgotten that the government represents the people and not business? Well, not
according to his latest piece in the NBR that I will discuss below.

Problems solved

I enjoyed this piece while at times I seethed much of what he said was palatable and some of it even sensible. Lets look at his idea for Christchurch first. Hide says:

The government should butt out of
Christchurch...Property rights should be recognised and reaffirmed rather than
endlessly pinched, the region should be declared tax-free and oppressive laws
such as the Resource Management Act, OSH
and the Employment Relations Act deemed inappropriate.

It was all going well until he spouted the bit about deeming laws that
address fundamental rights of individuals inappropriate [in bold - emphasis added].

What I like
about this suggestion is that he is right about the government butting out –
CERA is an impediment to the direct democracy of the people of Christchurch. CERA is an installed regime intended to ignore the plight of the people for the
benefit of some crony government agenda.

I’m also impressed by his tax free zone,
although in my opinion, this should be limited to personal income tax and GST because I'd be suspicious about some (external) businesses finding loopholes and using the tax free status of the region to create profits that didn't feed back into the community. And this would undermine the whole point of declaring Christchurch a tax free zone. The advantage of a tax free zone is that individuals would have their full wage to assist them in rebuilding their lives
which would go some way to providing the necessary relief in the wider community. It would also
benefit the local businesses because people would have more money to spend and would
be more likely to spend thereby circulating more money in the region without having to artificially create more money (banking) or printing more money (QE). I’m not entirely sure
how such a scheme could be implemented, but on the face of it, I think Hide’s idea has
merit. I suspect his reasons are because such a scheme would be more favourable
to businesses, while I prefer the idea for the benefit of the community as a whole.

Another idea I liked of Hide’s was in relation to the Ministry of Business, Innovation and Employment. Hide says:

Get rid of the Ministry of Business, Innovation and
Employment. That alone would signal that government understands that business,
innovation and employment aren’t things that flow out of the Beehive.

In my view, he’s right. Government is about
governance and not dictating what the economy should be doing. While I see a
role for government in facilitating the employment relationship, its not the
role of government to determine what is innovative for the private sector. I appreciate
that some people believe that some ‘public-private partnerships’ have been
successful, but I don't think this justifies the relationship since success is almost always measured in profitability. We elect the government to
represent us as a people and when governments are in partnership with business
there is a clear conflict of interest and conflicts of interest are deemed
highly inappropriate in most professions.

To conclude, for all the BS that Rodney spouts and his deliberate trolling of the left, he does happen to have some good ideas and opinions. What I am finding is that despite the differences in opinions or how our opinions and ideas are formed, where there is common ground we should probably work from there. Surely, its far more productive than slinging mud back and forth.

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About Me

The views expressed are my personal views. Some views will be well researched while others will be reactionary. Where appropriate I will provide references to material. Prone to inconsistencies over time. Feel free to hit me up about it.